According to this chart from the Federal Reserve Bank of San Francisco. The U.S. is the only country in the world with Fannie, Freddie, and Representative Frank, but our housing bubble was less than in many other countries. Differently-winged readers who want to cling to this G.O.P. talking point, please feel free to provide your own data to refute this conclusion in the comments.
Source: Federal Reserve Bank of San Francisco 11 January 2010 “Global Household Leverage, House Prices, and Consumption,” by Reuven Glick, and Kevin J. Lansing (click through for a complete discussion about the data presented here). Hat tip, HousingStory.net, “10 Key Charts to See Before You Buy a Home” and The Big Picture.
david-whelan says
That means Bob the Chart Man must be correct.
uffishthought says
Fannie, Freddie, and Frank didn’t cause our housing bubble, but your chart is flawed a bit.
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p>First, it doesnt accoutn for monetary fluctuations in Euro – specifically with the introduction of the Euro some time around ’97. As the Euro jumped dramatically in value, the price of everything changed. A 100,000 euro home in ’97 euros would be a dramatically different number in 2010 euro dollars.
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p>The graph for those countries more reflects the value of the euro for each country – poorer southern european countries saw a big boost along with Ireland – while Germany who is carrying all the water for their eonomies to stay on the euro saw a slight dip.
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p>Beyond fluctuations within currency’s, you are comparing economies on several different currencies. (Ya know how on the back of alot paperbacks it says $7.00 US, $10.00 canada – houses would be the same)
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p>I don’t know hardly anything about currency fluctuations, but i know enough to know that this chart is incomplete in that it doesnt say how monetary fluctuations effect it – doesnt mention it at all.
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p>Like I said, I agree with your premise, but I don’t think you should put a chart up like thsi one, that doesnt elaborate on what it shows.
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p>I’d welcome a more educated comment than my own on the subject…
bob-neer says
Enjoy the data and charts to your heart’s content. Likewise esteemed reality-based BMG commenters downthread.
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p>As to those differently-winged commenters who are members of the Chucklehead Brigade and argue without evidence, all I can say is: the contemporary G.O.P. “magical thinking” approach in a nutshell. Maybe you can find some snow in Washington DC to build an igloo with while you are at it. đŸ˜‰
uffishthought says
my question about the effect of currencies on the housing prices. In Ireland, where according to the newly provided link, housing prices rose over 170%, the euro had that effect on most products, not just housing.
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p>The chart and the report don’t say what they mean by “real money” and what they mean by “Note: All series are indexed to 100 in 1997 except Finland, which is indexed to 100 at 2001.”
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p>All I am asking is:
Does the chart, when it says “real money” mean that they are adjusted for inflation and currency valuation or not?
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p>I agree with you that the 3 F’s didnt cause the bubble, but if you can’t even say if the left side percentages were adjusted for inflation, then its not a very useful chart – AND you make it easy for republican to refute!
bob-neer says
They are obviously adjusted for inflation and currency insofar as each country is set to a common baseline of 100 and after that reflect real estate prices in that country (which are inclusive of inflation by definition since they are prices)! These are country-internal comparisons set on a single chart to show how the countries performed relative to one another from a common starting point.
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p>Fell free to disregard 1997-99 if that makes you feel better. It doesn’t make any difference to the argument.
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p>The crucial point is: why did those other countries, in their own terms, experience worse housing bubbles absent the three Fs? Conclusion (I’m still waiting for a credible refutation): the bubbles didn’t have much to do with the three Fs.
uffishthought says
I get your crucial point. What I am saying, is that the bubbles of those european countries who went on the Euro during this time, experienced those bubbles because of the Euro.
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p>Of course Barney Frank didn’t cause their bubbles. Just like the Euro didn’t cause our bubble – they each had different reasons for the bubble.
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p>But to say, Barney Frank didn’t cause their bubbles, therefore, he didn’t cause ours, is not logical.
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p>The European countries on that chart experienced bubbles for very different reasons that why we experienced a bubble.
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p>Showing that they all experienced a bubble, only proves the effect (the bubble) not the cause of the bubble (Euro for those countries and a big “?” for us).
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p>Can’t it be true that the Euro caused the bubble in Europe, and something else (republicans would say the 3 Fs) caused ours?
bob-neer says
Since the market for capital is global, and the markets for these credit products that helped produce these bubbles were, and are, largely unregulated. Irish mortgages were bundled similarly to US ones and also sold globally.
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p>Anyway, not all of the countries in that chart are members of the Eurozone.
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p>The most likely thing, I think, as this chart suggests, is that there was a common cause for the real estate bubbles, not a national one unique to the United States.
mr-lynne says
… actually ask anything:
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p>”All I am asking is:
Does the chart, when it says “real money” mean that they are adjusted for inflation and currency valuation or not?”
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p>That would have been sensible. Instead you said “…First, it doesnt accoutn for monetary fluctuations in Euro – …”
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p>That is quite a bit different than asking. In fact there isn’t a single question in your previous comment.
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p>Just an observation.
shillelaghlaw says
kathy says
stomv says
Houses have gotten much bigger in America in the past 50 years… between 1950 and 2000, the size of the average home doubled, despite substantially fewer people living in each home.
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p>So, per square foot of house, or per house?
mannygoldstein says
But most hoses are existing, so the growth rate is much lower.
mike-from-norwell says
But part of the problem? Yes; to argue otherwise is letting your political leanings get in the way of sober analysis.
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p>http://weeklystandard.com/arti…
bob-neer says
Sure, a part. A grain of sand is also part of a beach, and Howie Carr gets the time right twice a day.
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p>The useful question is: how much of a part. This chart suggests pretty clearly: an insignificant part.
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p>Let’s hear about the Irish, English, Spanish, Swedish and French equivalents to Barney Frank, who must have done so much more to contribute to those countries’ much larger bubbles, if your thesis is valid, if you want to make an argument.
mike-from-norwell says
are two different things:
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p>From my link:
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p>Did Fannie Mae/Freddie Mac et al “cause” the housing bubble singlehandedly? Certainly not. Did loosening of credit standards for political reasons worsen the impact of this particular bubble when it did pop? Certainly did. I’ll also throw in the suppression of long-term interest rates over the last decade post 2000 Stock Bubble – 9/11 as contributing factors. I’ll also throw in the side move around PMI with the “two mortgage” side step as another factor.
bob-neer says
I mean come on, if you want to make an argument, make it with some kind of reality-based evidence. Don’t just say “Did loosening of credit standards for political reasons worsen the impact of this particular bubble when it did pop? Certainly did.” without even scrap of evidence to support that claim. An no, anecdotal statements from economists don’t count. My friend says Barney Frank didn’t have anything to do with this: it was 100% synthetic instruments invented by Goldman Sachs. I don’t consider that convincing, either.
mike-from-norwell says
I’m not blaming Barnie Frank as the demon here (although I do remember back in October of 2008 Rep. Frank on WRKO with Finneran in the midst of the meltdown dismissing the CRA argument with the statement that CRA only applied to banks, and they weren’t getting whacked, so clearly CRA wasn’t a valid argument – of course one month later the very banks he mentioned were trading 70-99% off of their highs, so I think he might want to pull that one back off of the Internet). If I do remember, the Bush Administration was the one who decided to push home ownership as a way out after the 2000 Stock Market Crash followed by 9/11.
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p>There were many factors in the US that led to the Bubble; I’ve mentioned a few that don’t involve Fannie/Freddie Mac. Hell, I’ll throw in HGTV and the belief that putting in a granite countertop can be construed as an “investment” as part of the lunacy of the 2000s. But you can’t dismiss as “a grain of sand” the extension of credit through government programs to otherwise uncreditworthy buyers as having done them any favors in the end.
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p>I don’t consider a chart that shows that housing prices rose elsewhere, so our extension of easy credit as a political goal can be dismissed as a problem as a compelling argument myself. Guess we’re looking at each other through the mirror. Hope you noted that Raghuram Rajan is out of the University of Chicago, not Tea Party U.
dhammer says
Rajan can dress up Milton Freidman all he wants, but they all say the same thing, don’t get in the way of markets – pretty much textbook Tea Party.
mike-from-norwell says
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p>More than enough blame to go around here with Goldman Sachs et al, but FNMA and Freddie Mac were mandated by Congress to expand lending to those who traditionally wouldn’t qualify under stricter standards. Was it the intention of Congress to create a bubble? No, but there are always unintended consequences to everything.
roarkarchitect says
If small banks (that held onto their mortgages) were the only lenders in the US we would not have seen this boom. Loose standards and Securitization of mortgages allows banks and mortgage companies to write the loan then walk away from it with the fees and no future liability.
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p>But booms and busts are a human condition – read about the dutch tulip boom in the 1700’s. Our recent housing boom came after our dot com boom and the next boom is ?
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mike-from-norwell says
was fortunate enough my senior year of College to take 2 courses with Charles P. Kindleberger. Just about the most prescient human being I’ve ever had the chance to get to know.
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p>Would have loved to have heard what he would have said about this last go around. “Manias, Panics and Crashes” has reached a fifth edition now (carried on by Robert Aliber); think a sixth is (or should be) in the works.
roarkarchitect says
Wrote a good book about the Tech Boom called “Irrational Exuberance”. The data that was used in the chart above is from his housing index. He really knows his stuff and is a great speaker. He had a story about one of his co-workers and a fellow economist who couldn’t sell her house in one of the prior housing busts. He corrected her, she could certainly sell her house, but not at the price she wanted.
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roarkarchitect says
Is this because it didn’t fit their argument?
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bob-neer says
Is that because there isn’t one?
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p>The truth can hurt. We are here to help. Hey, maybe that should be a second BMG tag line. I like it.
edgarthearmenian says
I know from direct experience that homes in Ireland where some of my folks come from were ridiculously priced. Houses that are one step up from a hovel were listed in an area of County Cork for 500-600,000. euros. Some of these homes were renovated thatched roof jobs. Totally absurd prices. And we can’t blame the Maes for that.
stomv says
for the first time in centuries, more Irish were moving to Ireland than from Ireland. There was a very real increase in the demand for housing, particularly near Dublin. The increase in demand did promote additional speculation, and that particular factor likely isn’t present in many of the other nations on that chart…
edgarthearmenian says
went back during the good times. Some have returned and I met one three weeks ago who came to my door selling magazines. He told me that most houses have lost close to 2/3 of the inflated values and that lots of folks are “under water.”
mr-lynne says
… to getting my citizenship and moving there at one point.
roarkarchitect says
Check the Chart Canada didn’t suffer the same boom or bust.
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p>Canada also doesn’t allow a mortgage deduction for interest and I believe loans only have a 5 year term before the interest rate resets.
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christopher says
Plus there are countries listed on both sides of the US in this chart.
johnd says
so I guess he’s off the hook for being blamed for anything as well.
karenc says
to the success of the RW echo chamber which creates their own facts. They were not completely innocent, but they are the scape goats of choice of the right.
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p>The Financial organizations that created and sold mortgage based derivative securities, the financial institutes that sold credit swaps to hedge the risk of the derivatives created a situation where the writers of risky mortgages did not bear the risk of those mortgages. In addition, their were the credit rating agencies that gave excellent credit ratings to these financial instruments.
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p>They quickly sold the mortgages to companies that aggregated them. These companies included both the FMs and private companies. In the early 2000s, the FMs started to buy riskier mortgages because large companies (like Country wide) threatened to not sell them any of their mortgages if they didn’t take some of the riskier ones. A the FMs had stockholder demanding good rate of return, they opted to buy the junky mortgages.
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p>The FHs were not alone. There were private companies doing the same thing – buying mortgages, aggregating them and letting them become the raw material for the derivatives. For a time, the derivatives “worked” and they gave the illusion of greater wealth. As long as most of the mortgages continued to be paid and the few that failed led to only small losses as the houses had value, there was no problem. The problem was the embedded assumption that the % default would not reach the level it did and the housing market could not lose value as quickly as it did. (In retrospect, this was a time bomb that would blow up a soon as there was a major recession.)
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p>Add in all the deregulation that occurred in the 1980s and 1990s, which transformed the largest banks to be not just traditional banks after the repeal of Glass Stegall – pushed by Gramm, but signed by Clinton. Another Gramm provision put into a budget bill made derivatives and credit swaps not regulated.
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p>These banks, using their huge assets bought the derivatives – which became toxic assets. This was made worse because Bush’s SEC head raising the maximum leverage rate allowed from 12:1 to 44:1 in early 2004. (An obvious attempt to quietly stimulate the economy to make it look better in November – which it did)
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p>What seems clear is that the real cause of the bubble was greed and the willingness of many who should have known better to take enormous risk.
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p>As to whether greater regulation of the FMs would have stopped the problem, it seems completely unlikely. What it would have done is made the private competitors to the FMs bigger. As it was they had worse failure rates, but if the FMs were precluded from buying junk, they would have and likely would have done even worse. Meanwhile, the FMs would have been less attractive stocks in the 2000s, but they would have had fewer failures. However, the same financial crisis would have happened. Not to mention there was a bipartisan House bill, that Oxley and Frank supported (HR HR 1461 ) which would have regulated the FMs. It was defeated by the Republicans on the Senate Banking committee in a party line vote.
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p>(Caveat – I do not work in Finance, nor do I have any educational background in it. What I have written is just from what I was able to read in the media or looking at the House or Senate record when I was trying to understand who was telling the truth. )